##### 



EXHIBIT 22

The inside front cover and pages 5-12 and 14-29 of the Annual Report to Security
Holders for the fiscal year ended May 31, 2003 are appended hereto as Exhibit 22
hereof and are being electronically filed with this Form 10-K Annual Report.

Exhibit 22





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##### 



FINANCIAL HIGHLIGHTS

|                                               |         |      |         |        |   |      |         |        |  |      |         |        |  |   |         |        |  |   |         |        | 
|---------------------------------------------- | ------- | ---- | ------- | ------ | - | ---- | ------- | ------ |  | ---- | ------- | ------ |  | - | ------- | ------ |  | - | ------- | ------ | 
|                                               |         |      | May 31,
|                                               |         |      |        
|(in thousands, except per share information)   |         | 2003 |         | 2002   |   | 2001 |         | 2000   |  | 1999
|                                               |         |      |         |        |   |      |         |        |  |     
|Revenues                                       |         | $    | 108,796 |        |   | $    | 147,864 |        |  | $    | 211,176 |        |  | $ | 241,793 |        |  | $ | 269,739 |       
|Costs of revenues and depreciation             |         |      | 62,663  |        |   |      | 81,678  |        |  |      | 99,724  |        |  |   | 131,125 |        |  |   | 139,338 |       
|Selling, general and administrative expenses   |         |      | 37,399  |        |   |      | 50,492  |        |  |      | 62,625  |        |  |   | 65,104  |        |  |   | 77,612  |       
|Loss on impairment of goodwill and intangibles |         |      | 37,135  |        |   |      |        |        |  |      |        |        |  |   |        |        |  |   |        |       
|Interest and other, net                        |         |      | (4,091  | )      |   |      | (2,232  | )      |  |      | (708    | )      |  |   | 5,465   |        |  |   | 11,999  |       
|                                               |         |      |         |        |   |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       
|Income (loss) before income taxes              |         |      | (24,310 | )      |   |      | 17,926  |        |  |      | 49,535  |        |  |   | 40,099  |        |  |   | 40,790  |       
|Income tax (benefit) provision                 |         |      | (9,324  | )      |   |      | 4,804   |        |  |      | 18,822  |        |  |   | 15,237  |        |  |   | 16,725  |       
|                                               |         |      |         |        |   |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       
|Net income (loss)                              |         | $    | (14,986 | )      |   | $    | 13,122  |        |  | $    | 30,713  |        |  | $ | 24,862  |        |  | $ | 24,065  |       
|                                               |         |      |         |        |   |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       
|Earnings (loss) per share:                     |         |      |         |        |   |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       
|                                               | Basic   |      | $       | (0.60  | ) |      | $       | 0.53   |  |      | $       | 1.26   |  |   | $       | 1.01   |  |   | $       | 0.98   | 
|                                               | Diluted |      | $       | (0.60  | ) |      | $       | 0.53   |  |      | $       | 1.24   |  |   | $       | 1.00   |  |   | $       | 0.96   | 
|Shares used in per share calculation:          |         |      |         |        |   |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       
|                                               | Basic   |      |         | 24,810 |   |      |         | 24,602 |  |      |         | 24,416 |  |   |         | 24,571 |  |   |         | 24,443 | 
|                                               | Diluted |      |         | 24,810 |   |      |         | 24,837 |  |      |         | 24,753 |  |   |         | 24,972 |  |   |         | 25,004 | 
|Total assets                                   |         | $    | 277,100 |        |   | $    | 307,141 |        |  | $    | 312,468 |        |  | $ | 306,435 |        |  | $ | 368,708 |       
|Bank borrowings                                |         | $    |        |        |   | $    |        |        |  | $    |        |        |  | $ | 21,800  |        |  | $ | 107,500 |       
|Shareholders equity                           |         | $    | 252,508 |        |   | $    | 264,717 |        |  | $    | 250,186 |        |  | $ | 221,665 |        |  | $ | 196,174 |       
|Shareholders equity per common share          |         | $    | 10.17   |        |   | $    | 10.68   |        |  | $    | 10.21   |        |  | $ | 9.00    |        |  | $ | 8.01    |       
|                                               |         |      |         |        |   |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       





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##### 



ELECTRO RENT 2003 ANNUAL REPORT

5

MANAGEMENTSDISCUSSION AND ANALYSIS

The following discussion of the Companys financial condition and results of
operations should be read in conjunction with the fiscal 2003 Consolidated
Financial Statements and the notes thereto and the other financial and
statistical information appearing elsewhere in this annual report.

Overview

The Company generates revenues through the rental, lease and sale of electronic
equipment, including test and measurement (T&M) and computer-related (DP)
equipment. In fiscal 2003, 69% of rental and lease revenues was derived from
T&M equipment. This percentage has been increasing over the last four years as
a result of a steady erosion of DP revenues related to declines in product
purchase prices and unit volume. Rental revenues comprised 72% of fiscal 2003
rental and lease revenue, and this percentage also has been increasing over the
last four years due to a significant decline in personal computer leasing
activity.

The Companys profitability is primarily a function of the volume and pricing
of rental and lease transactions, and utilization of the equipment pool.
Significant changes in the purchase or disposal price of equipment or interest
rates can also have a significant effect on the Companys profitability,
depending on the ability of the Company to adjust rental and lease rates for
these changes. The Companys business requires significant expenditures for
equipment and, consequently, requires substantial liquidity to finance such
expenditures.

During fiscal 2003, demand for rental equipment declined along with the global
economic slowdown, which negatively impacted all of the Companys major market
segments. Additionally, rental rates and lease rates reached historic lows.
Monthly rental rates declined by 15% and monthly lease rates declined by 10%
during fiscal 2003. However, during that same period overall utilization for
the Companys equipment pool, based on acquisition cost, remained constant at
54%, which reflects the Companys continued liquidation and write-off of
under-performing assets.

We believe that demand for rental electronic equipment should improve when the
U.S. economy begins to recover. Also, increased defense spending on advanced
weapons and intelligence systems should benefit the Company. Until these events
take place, however, the Company will strive to operate the business
efficiently at the prevailing activity levels.

Fiscal 2003 Compared with Fiscal 2002

TOTAL REVENUES:Total revenues for fiscal 2003 decreased $39.1 million, or 26%,
to $108.8 million compared to $147.9 million in the prior year. The decline in
total revenues was due to a decrease in rental and lease revenue of 30% and a
decrease in sales of equipment and other revenues of 14%.

Rental and lease revenues in fiscal 2003 were $80.7 million, a 30% decline from
the prior year. This decrease was primarily the result of lower demand in the
Companys major market segments stemming from the global economic slowdown.
Additionally, DP rental revenue continued to be negatively impacted by
declining purchase prices of new personal computers and competition.

Sales of equipment and other revenues were $28.1 million in fiscal 2003, a
decrease of 14% as compared to fiscal 2002. This decrease reflects lower demand
and a smaller equipment pool, primarily for DP equipment.

DEPRECIATION OF RENTAL AND LEASE EQUIPMENT:Depreciation of equipment decreased
from $58.6 million in fiscal 2002, to $44.7 million, in fiscal 2003 as a result
of our efforts to dispose of equipment coupled with our decision to reduce
purchases of new equipment significantly. Although depreciation expense was
reduced by $13.9 million, or 24%, for fiscal 2003, depreciation increased to
55% of rental and lease revenues in fiscal 2003 from 51% of rental and lease
revenues in fiscal 2002 because the 30% decline in rental and lease revenues in
fiscal 2003 was not entirely offset by the Companys efforts in reducing the
equipment pool size.

COSTS OF REVENUES OTHER THAN DEPRECIATION:Costs of revenues other than
depreciation decreased from $23.0 million in fiscal 2002 to $17.9 million in
fiscal 2003. Costs of revenues other than depreciation primarily includes the
cost of equipment sales, which decreased from 70% of equipment sales in fiscal
2002 to 65% of equipment sales in fiscal 2003. This cost ratio decrease
reflects the liquidation of older used equipment, which during fiscal 2003 the
Company was able to sell at higher prices relative to its book value.





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ELECTRO RENT 2003 ANNUAL REPORT

6

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:Selling, general and
administrative expenses decreased $13.1 million, or 26%, to $37.4 million in
fiscal 2003 as compared to $50.5 million in fiscal 2002. These expenses as a
percentage of total revenues remained unchanged at 34% for each year. The
decline in SG&A expenses is the result of reductions in almost all areas of the
business, with approximately 52% of the reduction relating to personnel costs,
partly offset by certain restructuring costs described below.

During fiscal 2003, we continued our cost reduction activities to better align
expense levels with current revenue levels and reduce spending under the
current economic conditions. In particular, we closed our Duluth, Georgia,
distribution center during the fourth quarter of fiscal 2003, reducing the
total number of Company locations to fourteen, and we had 304 employees at the
end of fiscal 2003, compared to 425 at the end of the prior year. As a result
of these actions, we recorded restructuring charges of approximately $821,000
during the fourth quarter of fiscal 2003. These charges included approximately
$570,000 for the lease liability and approximately $31,000 for property and
equipment related to our Duluth facility and severance from employee
terminations of approximately $220,000. Approximately $113,000 of the employee
severance was paid during fiscal 2003 and the remainder will be paid in fiscal
2004. No comparable restructuring charges were recorded during fiscal 2002.

LOSS ON IMPAIRMENT OF GOODWILL AND OTHER INTANGIBLE ASSETS:During fiscal 2003,
the Company incurred an expense of $37.1 million as a result of an evaluation
done under Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill
and Other Intangible Assets. In accordance with SFAS No. 142, we performed
impairment testing for goodwill and other intangible assets during the quarter
ended May 31, 2003. Recorded goodwill related primarily to the GE Capital
Technology Management Services (TMS) acquisition in fiscal 1998, and other
intangible assets related to the Genstar Rental Electronics, Inc. acquisition
in fiscal 1995. Since we operate in a single business segment as a single
business unit, the determination of whether an impairment of goodwill existed
was based on a comparison of the fair value of the entire Company to the
carrying value of our net assets. In estimating the fair value of the entire
Company, we reviewed the average and closing stock prices for our Common Stock,
as well as other factors. Because the fair value of the entire Company was
determined to be less than the carrying value of our net assets, we were
required to record an impairment loss on goodwill of $35.7 million.
Additionally, because the Genstar trade name and customer contracts were deemed
to no longer have value to the Company, we were required to record an
impairment loss on intangible assets of $1.4 million. As a result of these
impairment losses recorded in the quarter ended May 31, 2003, the balances for
goodwill and intangible assets were reduced to zero. There were no charges for
impairment of goodwill and other intangible assets in fiscal 2002.

OPERATING PROFIT (LOSS):As a result of the changes in revenues and operating
expenses discussed above, the operating loss before interest and insurance
settlement income was $28.4 million or 26% of total revenues in fiscal 2003
compared to operating earnings of $15.7 million or 11% of total revenues in
fiscal 2002. The operating loss in fiscal 2003 includes the write-off of
goodwill and other intangibles of $37.1 million.

INTEREST INCOME, NET:Net interest income decreased from $2.2 million in fiscal
2002 to $2.1 million in fiscal 2003, despite a substantial increase in cash
equivalent investments. This was due to lower prevailing rates of interest in
money-market instruments.

INCOME FROM INSURANCE SETTLEMENT:On July 22, 2003, the Company received a
one-time insurance settlement of $2.0 million related to unrecoverable rental
and lease equipment written off in years prior to fiscal 2003. The Companys
claim was settled and the insurance proceeds were recorded as other income in
fiscal 2003. There was no comparable income in fiscal 2002.

INCOME TAX (BENEFIT) PROVISION:The Company recorded a tax benefit in fiscal
2003 due to the operating loss discussed above. In addition, at fiscal
year-end, the Company re-evaluated its accrued liability relating to state,
federal, local and foreign income taxes and reduced income tax expense by
approximately $500,000 in the fourth quarter of fiscal 2003. In the prior year,
we recorded a $2.0 million reduction in income tax expense related to a similar
re-evaluation. As a result, the effective tax benefit rate was 38% in fiscal
2003, as compared to a 27% tax provision rate in fiscal 2002.

Fiscal 2002 Compared with Fiscal 2001

TOTAL REVENUES:Total revenues for fiscal 2002 decreased 30% to $147.9 million
from $211.2 million for the prior year. Rental and lease revenues decreased 34%
to $115.3 million, primarily as a result of continued weakness in the business.
Sales of equipment and other revenues decreased 14% to $32.6 million due to
lower demand for T&M and DP equipment.





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##### 



ELECTRO RENT 2003 ANNUAL REPORT

7

DEPRECIATION OF RENTAL AND LEASE EQUIPMENT:In spite of progress in reducing
our DP equipment pool and related depreciation, depreciation of equipment
increased from 42% of rental and lease revenues in fiscal 2001 to 51% of rental
and lease revenues in fiscal 2002. This expense ratio increased because the 19%
decline in depreciation expense from the prior year period was exceeded by a
34% decline in rental and lease revenues. These changes also reflect the lower
rates of equipment utilization and lower rental and lease yields in the current
year, as compared to the prior year.

DP equipment utilization continued a four-year decline to its lowest historical
level, while T&M equipment utilization continued a decline, which began in the
fourth quarter of fiscal 2001 and reached its lowest level since fiscal 1994.

COSTS OF REVENUES OTHER THAN DEPRECIATION:Costs of revenues other than
depreciation primarily includes the cost of equipment sales, which increased
from 69% of equipment sales in fiscal 2001 to 70% of equipment sales in fiscal
2002. This cost ratio increase reflects the liquidation of used equipment which
is cumulatively less depreciated in the current year, compared to the prior
year.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:Selling, general and
administrative expenses totaled $50.5 million for fiscal 2002, or 34% of
revenues, as compared to $62.6 million, or 30% of revenues, for fiscal 2001.
Although SG&A expenses were reduced by 19%, reflecting a reduction in
personnel, the closing of certain locations, resolution of the TMS arbitration,
and the termination of goodwill amortization, total revenues declined at a
faster rate of 30%.

OPERATING PROFIT:As a result of the changes in revenues, operating costs and
expenses discussed above, earnings before interest and taxes were $15.7
million, or 11% of total revenues, in fiscal 2002 compared to $48.8 million, or
23% of total revenues, in fiscal 2001.

INTEREST INCOME, NET:Net interest income increased from $0.7 million in fiscal
2001 to $2.2 million in fiscal 2002. This change is due to the repayment of all
bank borrowings during fiscal 2001, and subsequent investment of the Companys
net cash flow in money market instruments.

INCOME TAX PROVISION:At year-end, the Company re-evaluated its accrued
liability for income taxes and reduced income tax expense by approximately $2.0
million in the fourth quarter of fiscal 2002. As a result, the effective tax
rate was 27% in fiscal 2002, as compared to 38% in fiscal 2001.

Liquidity and Capital Resources

Historically, the Companys primary capital requirements have been purchases of
rental and lease equipment and debt service. However, because of the decline in
business over the last four years, the Company has had no bank borrowings since
the third quarter of fiscal 2001. The Company purchases equipment throughout
each year to replace equipment, that has been sold, and to maintain adequate
levels of rental equipment to meet existing and new customer demands. The
rental and leasing market for personal computers has declined over the last
four years, and the T&M market began declining in the last quarter of fiscal
2001. However, during fiscal 2003, the Company continued to make modest
purchases of T&M and DP equipment in order to support some areas of potential
growth, and to keep the Companys equipment pool technologically up-to-date.
Cash and cash equivalents are likely to continue to accumulate, unless the
Company decides to buy back additional shares of its common stock, pay a
dividend, finance another acquisition, or pursue other opportunities. The
Company has invested its growing cash balance in U.S. government money market
funds and other instruments with maturities of less than 90 days.

During fiscal year 2001, the Companys Board of Directors authorized management
to implement a limited stock repurchase program in the amount of 1,500,000
shares. As of May 31, 2003, the Company had bought back 318,000 common shares
for $3.0 million, or $9.37 per share. The only shares repurchased since fiscal
2001 have been in connection with the stock-for-stock exercise of employee
options. Shares acquired are restored to the status of authorized but un-issued
shares.

Since the Company began accumulating significant cash balances in fiscal 2001,
the Companys Board of Directors has continuously reviewed investment
alternatives. The Company is currently conducting a thorough review of its
opportunities for growing the business, including what financial resources
would be required to accomplish its goals. During fiscal 2004 the Company
expects to be in a position to make a judgment as to what best to do with its
cash for the benefit of our shareholders.

Electro Rents rental and lease equipment portfolio totaled $252.7 million, at
acquisition cost, at May 31, 2003, decreasing $70.2 million from last year.
During the three years ended May 31, 2003, the Company made payments for
equipment purchases totaling





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ELECTRO RENT 2003 ANNUAL REPORT

8

$144.8 million, while recording a net decrease in its equipment portfolio
at acquisition cost of $191.8 million resulting from the liquidation of used
equipment. The Company has three principal sources of liquidity: cash flows
provided by its operating activities, proceeds from the sale of equipment from
its portfolio, and external funds that historically have been provided by bank
borrowings.

During the years ended May 31, 2003 and 2002 net cash provided by operating
activities was $49.1 million and $76.4 million, respectively. The decrease in
fiscal 2003 results primarily from the declines in net income and depreciation
expense.

During the years ended May 31, 2003 and 2002 net cash used in investing
activities was $13.6 million and $23.3 million, respectively. This change is
primarily attributable to the significant reduction of payments for the
purchase of rental and lease equipment to $26.7 million in fiscal 2003 from
$51.1 million in fiscal 2002, partly offset by declines in proceeds from the
sale of used equipment to $24.0 million in fiscal 2003 from $27.9 in fiscal
2002 and the purchase of marketable securities of $10.0 million in fiscal 2003.

During fiscal 2003 net cash provided from financing activities was $200,000
compared to $1.4 million in fiscal 2002. This decrease is largely due to lower
proceeds from stock issuance on fewer option exercises in the current year. The
total result of the cash flows from operating, investing and financing
activities in fiscal 2003 was an increase in cash and cash equivalents of $35.8
million.

As the following table illustrates, cash flows from operating activities and
proceeds from the sale of equipment have been more than sufficient to fund the
Companys operations during the last three years.

|                                                        |  |      |         |      |  |      |         |              |  |   |         |   |  |                   |          |  
|------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | ------------ |  | - | ------- | - |  | ----------------- | -------- | -
|                                                        |  |      |         |      |  |      |         |              |  |   |         |   |  | Three Years Ended
|(in thousands)                                          |  | 2001 |         | 2002 |  | 2003 |         | May 31, 2003
|                                                        |  |      |         |      |  |      |         |             
|Cash flows from operating activities(1)                 |  | $    | 97,434  |      |  | $    | 76,411  |              |  | $ | 49,148  |   |  | $                 | 222,993  |  
|Proceeds from sale of equipment                         |  |      | 32,745  |      |  |      | 27,913  |              |  |   | 24,005  |   |  |                   | 84,663   |  
|Total cash flows available for equipment purchases      |  |      | 130,179 |      |  |      | 104,324 |              |  |   | 73,153  |   |  |                   | 307,656  |  
|Payments for equipment purchases                        |  |      | (66,987 | )    |  |      | (51,159 | )            |  |   | (26,653 | ) |  |                   | (144,799 | )
|Net decrease in bank borrowings                         |  |      | (21,800 | )    |  |      | 0       |              |  |   | 0       |   |  |                   | (21,800  | )
|Net decrease in equipment portfolio at
acquisition cost |  |      | (55,048 | )    |  |      | (66,549 | )            |  |   | (70,186 | ) |  |                   | (191,783 | )
|                                                        |  |      |         |      |  |      |         |              |  |   |         |   |  |                   |          |  



---

|(1) |  | For the components of cash flows from operating activities, see the
Consolidated Statements of Cash Flows.
|--- |  | ----------------------------------------------------------------------------------------------------------

As indicated by the table, cash flows from operating activities and proceeds
from sale of equipment provided 212% of the funds required for equipment
purchased during the three-year period ended May 31, 2003. Rental and lease
revenues have been significantly supplemented as a source of cash flow by
proceeds from the sale of equipment from Electro Rents portfolio. Management
believes that cash and cash equivalents, cash flows from operating activities,
proceeds from the sale of equipment and its borrowing capacity (see Note 4 of
Notes to Consolidated Financial Statements) will be sufficient to fund the
Companys operations for at least the next twelve months.

The market for personal computers and test equipment continued to weaken during
fiscal 2003, and as a result, the Companys expenditures for equipment
decreased. The Company repaid its bank borrowings in full during the first half
of fiscal 2001. Since then, the Company has accumulated cash which has been
invested in short-term money market funds. The Companys cash and cash
equivalents are likely to continue to accumulate, unless the Company decides to
buy back additional shares, pay a dividend, finance an acquisition, or pursue
other opportunities.

The Company has a $10.0 million revolving line of credit with a bank, subject
to certain restrictions; to meet equipment acquisition needs as well as working
capital and general corporate requirements. The Company had no borrowings
outstanding at May 31, 2003.

The Company leases certain facilities under various operating leases. Most of
the lease agreements provide the Company with the option of renewing its lease
at the end of the initial lease term, at the fair rental value, for periods of
up to five years. In most cases, management expects that in the normal course
of business facility leases will be renewed or replaced by other leases.





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ELECTRO RENT 2003 ANNUAL REPORT

9

Inflation generally has favorably influenced the Companys results of
operations by enhancing the sale prices of its used equipment. However, lower
inflation rates and the continued availability of newer, less expensive
equipment with similar or better specifications could result, over a period of
several years, in lower relative sale prices for used electronic equipment. If
this should occur, the Companys margins and earnings will be reduced. Prices
of new and used electronic test equipment have not consistently followed the
overall inflation rate. Prices of new and used personal computers and servers
have consistently declined for the past three years. Because management is
unable to predict the advances in technology and the rate of inflation for the
next several years, it is not possible to estimate the impact of these factors
on the Companys margins and earnings.

Contractual Obligations

The table below presents the amount of payments due under the Companys
contractual obligations. The table reflects expected payments due as of May 31,
2003 and does not reflect changes which could arise after that time.

|                                                                    |  |                        |       |      |  |        |     |       |  |       |     |        |  |   |   |      |  |   |   | 
|------------------------------------------------------------------- |  | ---------------------- | ----- | ---- |  | ------ | --- | ----- |  | ----- | --- | ------ |  | - | - | ---- |  | - | - | 
|                                                                    |  | Payments due by period
|                                                                    |  |                       
|                                                                    |  |                        |       |      |  | Less   |     |       |  |       |     |        |  |   |   | More
|                                                                    |  |                        |       |      |  | than 1 |     | 1-3   |  | 3-5   |     | than 5
|Contractual Obligations (in thousands)                              |  | Total                  |       | year |  | years  |     | years |  | years
|                                                                    |  |                        |       |      |  |        |     |       |  |      
|Facility lease payments, not including
property taxes and insurance |  | $                      | 1,738 |      |  | $      | 952 |       |  | $     | 786 |        |  | $ |  |      |  | $ |  | 
|                                                                    |  |                        |       |      |  |        |     |       |  |       |     |        |  |   |   |      |  |   |   | 
|Total                                                               |  | $                      | 1,738 |      |  | $      | 952 |       |  | $     | 786 |        |  | $ |  |      |  | $ |  | 
|                                                                    |  |                        |       |      |  |        |     |       |  |       |     |        |  |   |   |      |  |   |   | 

Qualitative and Quantitative Disclosures About Interest Rates and Currency Rates

The Company is exposed to market risks related to changes in interest rates and
foreign currency exchange rates, however, the Company believes those risks to
be not material in relation to our operations. We do not have any derivative
financial instruments.

As of May 31, 2003 and 2002, our cash and cash equivalents included money
market securities. Due to the short-term duration of our investment portfolio,
an immediate 10% change in interest rates would not have a material effect on
the fair market value of our portfolio, therefore, the Company would not expect
our operating results or cash flows to be affected to any significant degree by
the effect of a sudden change in market interest rates on our securities
portfolio.

The Company is also subject to risks associated with foreign currency rate
fluctuations to the extent of financing arrangements for rented and leased
equipment denominated in Canadian dollars. The Company has determined that
hedging of these assets is not cost effective and instead attempts to minimize
its risks due to currency and exchange rate fluctuations through working capital
management. The Company does not believe that any foreseeable change in
currency rates would materially or adversely affect its financial position or
results of operations.

Controls and Procedures

Electro Rent maintains disclosure controls and procedures designed to ensure
that information required to be disclosed by Electro Rent in the reports that
it files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported, within the time periods specified in the
Securities and Exchange Commissions rules and forms. As of the end of the
period covered by this report, Electro Rent carried out an evaluation of the
effectiveness of the design and operation of Electro Rents disclosure controls
and procedures pursuant to Exchange Act Rules 13a-14 and 15d-14. The evaluation
was conducted under the supervision of, and with the participation of, Electro
Rents management, including Electro Rents Chief Executive Officer (CEO) and
Chief Financial Officer (CFO). Based upon that evaluation, Electro Rents CEO
and CFO concluded that Electro Rents disclosure controls and procedures are
effective in alerting them, on a timely basis, to material information relating
to Electro Rent (including its consolidated subsidiaries) that is required to
be included in its periodic filings with the Securities and Exchange
Commission. There were no significant deficiencies or material weaknesses, and
therefore there were no corrective actions taken.





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ELECTRO RENT 2003 ANNUAL REPORT

10

Since the most recent evaluation of Electro Rents internal control over
financial reporting by Electro Rents CEO and CFO, there have been no
significant changes in its internal control over financial reporting or in
other factors that could materially affect, or is reasonably likely to
materially affect, Electro Rents internal control over financial reporting. To
maintain adequate and efficient controls, over time, Electro Rents CEO and CFO
periodically review Electro Rents internal and disclosure controls with other
members of Electro Rents management and update controls and systems as needed.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America (generally
accepted accounting principles) requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. On a regular basis, management reviews these estimates
including those related to asset lives and depreciation methods, impairment of
long-lived assets including rental and lease equipment and intangibles,
allowance for doubtful accounts, and contingencies and litigation. These
estimates are based on managements historical experience and on various other
assumptions believed to be reasonable under the circumstances. Actual results
may differ from these estimates under different assumptions or conditions.
Management believes, however, that the estimates, including those for the
above-listed items, are reasonable.

Management believes the following critical accounting policies affect the more
significant judgments and estimates used in the preparation of the Companys
financial statements:

ASSET LIVES AND DEPRECIATION METHODS:The Companys primary business involves
the purchase and subsequent rent and lease of long-lived electronic equipment.
Management has chosen assets lives that it believes correspond to the economic
life of the related asset. Management has chosen depreciation methods that it
believes matches the benefit to the Company from the asset with the associated
costs. These judgments have been made based on managements expertise in each
equipment type that the Company carries. If the asset life and depreciation
method chosen do not reduce the book value of the asset to at least the
potential future cash flows from the asset to the Company, the Company would be
required to record a loss on revaluation.

IMPAIRMENT OF LONG-LIVED ASSETS:On a regular basis, management reviews the
carrying value of its rental and lease equipment and intangible assets
to determine if the carrying value of the assets may not be recoverable due to
current and forecasted economic conditions. This requires management to make
estimates related to future cash flows from the assets and to determine whether
any deterioration is temporary or permanent. If these estimates or the related
assumptions change in the future, management may be required to record
additional impairment charges.

In accordance with Statement of Financial Accounting Standards (SFAS) No.
142, we performed impairment testing for goodwill and other intangible assets
during the quarter ended May 31, 2003. Since we operate in a single business
segment as a single business unit, the determination of whether an impairment
of goodwill existed was based on a comparison of the fair value of the entire
Company to the carrying value of our net assets. In estimating the fair value
of the entire Company, we reviewed the average and closing stock prices for our
Common Stock, as well as other factors. Because the fair value of the entire
Company was determined to be less than the carrying value of our net assets, we
were required to record an impairment loss on goodwill of $35.7 million.
Additionally, because the Genstar trade name and customer contracts were deemed
to no longer have value to the Company, we were required to record an
impairment loss on intangible assets of $1.4 million. As a result of these
impairment losses recorded in the quarter ended May 31, 2003, the balances for
goodwill and intangible assets were reduced to zero.

ALLOWANCE FOR DOUBTFUL ACCOUNTS:The Company maintains allowances for doubtful
accounts for estimated losses resulting from the inability of customers to make
rental and lease payments. These estimates are primarily based on the amount of
time that has lapsed since the related payments were due as well as specific
knowledge related to the ability of customers to make the required payments. If
the financial condition of the Companys customers were to deteriorate,
additional allowances could be required that would reduce income. Conversely,
if the financial condition of the customers were to improve or if legal
remedies to collect past due amounts were more successful than expected, the
allowance for doubtful accounts may need to be reduced and income would be
increased.





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ELECTRO RENT 2003 ANNUAL REPORT

11

CONTINGENCIES AND LITIGATION:The Company is subject to legal proceedings
involving ordinary and routine claims related to its business. The ultimate
legal and financial liability with respect to such matters cannot be estimated
with certainty and requires the use of estimates in recording liabilities for
potential litigation settlements. Estimates for losses from litigation are made
after consultation with outside counsel. If estimates of potential losses
increase or the related facts and circumstances change in the future, the
Company may be required to record either more or less litigation expense.

RECENT ACCOUNTING PRONOUNCEMENTS:In August 2001, the FASB issued SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, which is
effective for the fiscal years beginning after December 15, 2001. The Company
adopted SFAS No. 144 as required on June 1, 2002. This standard did not have a
significant effect on the Companys consolidated financial statements.

In June 2002, the FASB issued SFAS 146,Accounting for Costs Associated with
Exit or Disposal Activities. SFAS No. 146 requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability
is incurred. SFAS No. 146 eliminates the definition and requirement for
recognition of exit costs in Emerging Issues Task Force Issue No. 94-3 where a
liability for an exit is recognized at the date of an entitys commitment to an
exit plan. This statement is effective for exit or disposal activities
initiated after December 31, 2002. Adoption of SFAS No. 146 did not have a
significant effect on the Companys consolidated financial statements.

In November 2002, the FASB issued FASB Interpretation (FIN) No.
45,Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees and Indebtedness of Others, an interpretation of SFAS Nos.
5, 57 and 107, and rescission of FIN No. 34,Disclosure of Indirect Guarantees
of Indebtedness of Others. FIN No. 45 elaborates on the disclosures to be made
by the guarantor in its interim and annual financial statements about its
obligations under certain guarantees that it has issued. It also requires that
a guarantor recognize, at the inception of a guarantee, a liability for the
fair value of the obligation undertaken in issuing the guarantee. The initial
recognition and measurement provisions of the interpretation are applicable on
a prospective basis to guarantees issued or modified after December 31, 2002,
while the provisions of the disclosure requirements are effective for financial
statements of interim or annual periods ending after December 15, 2002.
Adoption of such interpretation did not have a material impact on the Companys
results of operations, financial position or cash flows.

In December 2002, the FASB issued SFAS No. 148,Accounting for Stock-Based
Compensation-Transition and Disclosure-an amendment of FASB Statement No.
123. SFAS No. 148 provides alternative methods of transition for entities that
voluntarily change to the fair value method of accounting for stock-based
employee compensation, and it also amends the disclosure provisions of SFAS No.
123 to require prominent disclosure about the effects of an entitys accounting
policy decisions with respect to stock-based employee compensation in both
annual and interim reporting. The amendments are effective for fiscal years
ending after December 15, 2002. The Company adopted SFAS No. 148 on March 1,
2003.

In April 2003, the FASB issued SFAS No. 149,Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities under FASB Statement No. 133,Accounting for Derivative
Instruments and Hedging Activities. The provisions of SFAS No. 149 are
effective for contracts entered into or modified after June 30, 2003, and for
hedging relationships designated after June 30, 2003. The Company does not
believe the adoption of this statement will have a material impact on its
financial position, results of operations or cash flows.

In May 2003, the FASB issued SFAS No. 150,Accounting for Certain Instruments
with Characteristics of Both Liabilities and Equity, which establishes
standards for how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity. SFAS No. 150
requires that an issuer classify a financial instrument that is within its
scope, which may have previously been reported as equity, as a liability (or an
asset in some circumstances). This statement is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003, except for mandatory redeemable financial instruments of nonpublic
companies. The Company does not believe that the adoption of SFAS No. 150 will
have a significant impact on its financial statements.





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ELECTRO RENT 2003 ANNUAL REPORT

12

Special Note About Forward-Looking Statements

Except for the historical statements and discussions contained in this Annual
Report, statements contained in this Annual Report constitute forward-looking
statements within the meaning of section 21E of the Securities Exchange Act of
1934. These forward- looking statements reflect the current views of the
Companys management with respect to future events and financial performance;
however, you should not put undue reliance on these statements. The Company
undertakes no obligation to update or revise any forward-looking statements
that are or may be affected by developments, which the Companys management
does not deem material. When used or incorporated by reference in this Annual
Report, the words anticipate, believes, expects, intends, future, and
other similar expressions identify forward-looking statements. These
forward-looking statements are subject to certain risks and uncertainties, not
all of which are disclosed in this Annual Report. The Company believes its
managements assumptions are reasonable; nonetheless, it is likely that at
least some of these assumptions will not come true. Accordingly, the Companys
actual results will probably differ from the outcomes contained in any
forward-looking statement, and those differences could be material. Factors
that could cause or contribute to these differences include, among others,
those risks and uncertainties discussed under the sections contained in this
Annual Report entitled Managements Discussion and Analysis of Financial
Condition and Results of Operations, and in Quantitative and Qualitative
Disclosure About Interest Rates and Currency Rates, as well as in the
Companys Annual Report on Form 10-K for the year ended May 31, 2003, including
the Risk Factors attached as Exhibit 99 to that document, the Companys Proxy
Statement for its 2003 Annual Meeting of Shareholders and the Companys other
filings with the Securities and Exchange Commission. Should one or more of the
risks discussed, or any other risks, materialize, or should one or more of the
Companys underlying assumptions prove incorrect, the Companys actual results
may vary materially from those anticipated, estimated, expected or projected.





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ELECTRO RENT 2003 ANNUAL REPORT

14

CONSOLIDATED STATEMENTS OF OPERATIONS

|                                             |                                                                         |                          |         |                    |         |      |        |         |         |   |        |         |         | 
|-------------------------------------------- | ----------------------------------------------------------------------- | ------------------------ | ------- | ------------------ | ------- | ---- | ------ | ------- | ------- | - | ------ | ------- | ------- | 
|                                             |                                                                         |                          |         | Year Ended May 31,
|                                             |                                                                         |                          |         |                   
|(in thousands, except per share information) |                                                                         | 2003                     |         | 2002               |         | 2001
|                                             |                                                                         |                          |         |                    |         |     
|REVENUES:                                    |                                                                         |                          |         |                    |         |      |        |         |         |   |        |        
|                                             | Rentals and leases                                                      |                          | $       | 80,667             |         |      | $      | 115,310 |         |   | $      | 173,495 |        
|                                             | Sales of equipment and other revenues                                   |                          |         | 28,129             |         |      |        | 32,554  |         |   |        | 37,681  |        
|                                             |                                                                         |                          |         |                    |         |      |        |         |         |   |        |         |        
|                                             |                                                                         | Total revenues           |         |                    | 108,796 |      |        |         | 147,864 |   |        |         | 211,176 | 
|                                             |                                                                         |                          |         |                    |         |      |        |         |         |   |        |         |        
|OPERATING EXPENSES:                          |                                                                         |                          |         |                    |         |      |        |         |         |   |        |        
|                                             | Depreciation of rental and lease equipment                              |                          |         | 44,733             |         |      |        | 58,639  |         |   |        | 72,753  |        
|                                             | Costs of revenues other than depreciation
of rental and lease equipment |                          |         | 17,930             |         |      |        | 23,039  |         |   |        | 26,971  |        
|                                             | Selling, general and administrative expenses                            |                          |         | 37,399             |         |      |        | 50,492  |         |   |        | 62,625  |        
|                                             | Loss on impairment of goodwill                                          |                          |         | 35,703             |         |      |        |        |         |   |        |        |        
|                                             | Loss on impairment of intangibles                                       |                          |         | 1,432              |         |      |        |        |         |   |        |        |        
|                                             |                                                                         |                          |         |                    |         |      |        |         |         |   |        |         |        
|                                             |                                                                         | Total operating expenses |         |                    | 137,197 |      |        |         | 132,170 |   |        |         | 162,349 | 
|                                             |                                                                         |                          |         |                    |         |      |        |         |         |   |        |         |        
|Operating profit (loss)                      |                                                                         |                          | (28,401 | )                  |         |      | 15,694 |         |         |   | 48,827 |        
|Interest income, net                         |                                                                         |                          | 2,091   |                    |         |      | 2,232  |         |         |   | 708    |        
|Income from insurance settlement             |                                                                         |                          | 2,000   |                    |         |      |       |         |         |   |       |        
|                                             |                                                                         |                          |         |                    |         |      |        |         |         |   |        |         |        
|Income (loss) before income taxes            |                                                                         |                          | (24,310 | )                  |         |      | 17,926 |         |         |   | 49,535 |        
|Income tax (benefit) provision               |                                                                         |                          | (9,324  | )                  |         |      | 4,804  |         |         |   | 18,822 |        
|                                             |                                                                         |                          |         |                    |         |      |        |         |         |   |        |         |        
|Net income (loss)                            |                                                                         | $                        | (14,986 | )                  |         | $    | 13,122 |         |         | $ | 30,713 |        
|                                             |                                                                         |                          |         |                    |         |      |        |         |         |   |        |         |        
|Earnings (loss) per share:                   |                                                                         |                          |         |                    |         |      |        |         |         |   |        |        
|                                             | Basic                                                                   |                          | $       | (0.60              | )       |      | $      | 0.53    |         |   | $      | 1.26    |        
|                                             | Diluted                                                                 |                          | $       | (0.60              | )       |      | $      | 0.53    |         |   | $      | 1.24    |        
|Shares used in per share calculation:        |                                                                         |                          |         |                    |         |      |        |         |         |   |        |        
|                                             | Basic                                                                   |                          |         | 24,810             |         |      |        | 24,602  |         |   |        | 24,416  |        
|                                             | Diluted                                                                 |                          |         | 24,810             |         |      |        | 24,837  |         |   |        | 24,753  |        

The accompanying notes are an integral part of these consolidated financial
statements.





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ELECTRO RENT 2003 ANNUAL REPORT

15

CONSOLIDATED BALANCE SHEETS

|                                         |                                                                                                                                                                                     |                            |         |               |         |   |         |         |         | 
|---------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------- | ------------- | ------- | - | ------- | ------- | ------- | 
|                                         |                                                                                                                                                                                     |                            |         | As of May 31,
|(in thousands, except share information) |                                                                                                                                                                                     | 2003                       |         | 2002         
|                                         |                                                                                                                                                                                     |                            |         |              
|ASSETS                                   |                                                                                                                                                                                     |                            |         |               |         |   |         |        
|                                         | Cash and cash equivalents                                                                                                                                                           |                            | $       | 151,448       |         |   | $       | 115,623 |        
|                                         | Marketable securities                                                                                                                                                               |                            |         | 10,000        |         |   |         |        |        
|                                         | Accounts receivable, net of allowance for doubtful accounts of
$1,106 and $2,461                                                                                                    |                            |         | 6,874         |         |   |         | 12,023  |        
|                                         | Rental and lease equipment, net of accumulated depreciation of
$165,334 and $201,438                                                                                                |                            |         | 87,344        |         |   |         | 121,426 |        
|                                         | Other property, net of accumulated depreciation and amortization
of $10,997 and $12,241                                                                                             |                            |         | 16,409        |         |   |         | 16,912  |        
|                                         | Goodwill                                                                                                                                                                            |                            |         |              |         |   |         | 35,703  |        
|                                         | Intangibles, net of amortization of $4,942                                                                                                                                          |                            |         |              |         |   |         | 1,558   |        
|                                         | Other                                                                                                                                                                               |                            |         | 5,025         |         |   |         | 3,896   |        
|                                         |                                                                                                                                                                                     |                            |         |               |         |   |         |         |        
|                                         |                                                                                                                                                                                     | $                          | 277,100 |               |         | $ | 307,141 |        
|                                         |                                                                                                                                                                                     |                            |         |               |         |   |         |         |        
|LIABILITIES AND SHAREHOLDERS EQUITY     |                                                                                                                                                                                     |                            |         |               |         |   |         |        
|Liabilities:                             |                                                                                                                                                                                     |                            |         |               |         |   |         |        
|                                         | Accounts payable                                                                                                                                                                    |                            | $       | 6,332         |         |   | $       | 7,185   |        
|                                         | Accrued expenses                                                                                                                                                                    |                            |         | 13,248        |         |   |         | 16,706  |        
|                                         | Deferred revenue                                                                                                                                                                    |                            |         | 1,833         |         |   |         | 2,716   |        
|                                         | Deferred income taxes                                                                                                                                                               |                            |         | 3,179         |         |   |         | 15,817  |        
|                                         |                                                                                                                                                                                     |                            |         |               |         |   |         |         |        
|                                         | Total liabilities                                                                                                                                                                   |                            |         | 24,592        |         |   |         | 42,424  |        
|                                         |                                                                                                                                                                                     |                            |         |               |         |   |         |         |        
|Commitments and contingencies (Note 9)   |                                                                                                                                                                                     |                            |         |               |         |   |         |        
|Shareholders equity:                    |                                                                                                                                                                                     |                            |         |               |         |   |         |        
|                                         | Preferred stock, $1 par  shares authorized 1,000,000; none issued
Common stock, no par  shares authorized 40,000,000; issued and
outstanding 2003  24,821,015; 2002  24,774,734 |                            |         | 16,023        |         |   |         | 13,246  |        
|Retained earnings                        |                                                                                                                                                                                     |                            | 236,485 |               |         |   | 251,471 |        
|                                         |                                                                                                                                                                                     |                            |         |               |         |   |         |         |        
|                                         |                                                                                                                                                                                     | Total shareholders equity |         |               | 252,508 |   |         |         | 264,717 | 
|                                         |                                                                                                                                                                                     |                            |         |               |         |   |         |         |        
|                                         |                                                                                                                                                                                     | $                          | 277,100 |               |         | $ | 307,141 |        
|                                         |                                                                                                                                                                                     |                            |         |               |         |   |         |         |        

The accompanying notes are an integral part of these consolidated financial statements.





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ELECTRO RENT 2003 ANNUAL REPORT

16

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY

|                                                             |                                                              |           |                                |        |   |          |        |       |          |   |         |        |  
|------------------------------------------------------------ | ------------------------------------------------------------ | --------- | ------------------------------ | ------ | - | -------- | ------ | ----- | -------- | - | ------- | ------ | -
|                                                             |                                                              |           | Three years ended May 31, 2003
|                                                             |                                                              |           |                               
|                                                             |                                                              |           | Common Stock                   |        |   |          |       
|                                                             |                                                              |           |                                |        |   |          |       
|                                                             |                                                              |           | Number                         |        |   |          |        |       | Retained
|(in thousands)                                               |                                                              | of Shares |                                | Amount |   | Earnings
|                                                             |                                                              |           |                                |        |   |         
|Balance, May 31, 2000                                        |                                                              |           | 24,635                         |        |   | $        | 11,139 |       |          | $ | 210,526 |       
|                                                             | Exercise of stock options, net, including related tax effect |           |                                | 186    |   |          |        | 789   |          |   |         |       |  
|                                                             | Repurchase of common stock                                   |           |                                | (318   | ) |          |        | (146  | )        |   |         | (2,835 | )
|                                                             | Net income for the year ended May 31, 2001                   |           |                                |       |   |          |        |      |          |   |         | 30,713 |  
|                                                             |                                                              |           |                                |        |   |          |        |       |          |   |         |       
|Balance, May 31, 2001                                        |                                                              |           | 24,503                         |        |   |          | 11,782 |       |          |   | 238,404 |       
|                                                             | Exercise of stock options, net, including related tax effect |           |                                | 276    |   |          |        | 1,467 |          |   |         |       |  
|                                                             | Repurchase of common stock                                   |           |                                | (4     | ) |          |        | (3    | )        |   |         | (55    | )
|                                                             | Net income for the year ended May 31, 2002                   |           |                                |       |   |          |        |      |          |   |         | 13,122 |  
|                                                             |                                                              |           |                                |        |   |          |        |       |          |   |         |       
|Balance, May 31, 2002                                        |                                                              |           | 24,775                         |        |   |          | 13,246 |       |          |   | 251,471 |       
|                                                             |                                                              |           |                                |        |   |          |        |       |          |   |         |       
|Exercise of stock options, net, including related tax effect |                                                              |           | 46                             |        |   |          | 242    |       |          |   |        |       
|Tax benefit for stock options exercised (Note 1)             |                                                              |           |                               |        |   |          | 2,535  |       |          |   |        |       
|Net loss for the year ended May 31, 2003                     |                                                              |           |                               |        |   |          |       |       |          |   | (14,986 | )     
|                                                             |                                                              |           |                                |        |   |          |        |       |          |   |         |       
|Balance, May 31, 2003                                        |                                                              |           | 24,821                         |        |   | $        | 16,023 |       |          | $ | 236,485 |       
|                                                             |                                                              |           |                                |        |   |          |        |       |          |   |         |       

The accompanying notes are an integral part of these consolidated financial statements.





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ELECTRO RENT 2003 ANNUAL REPORT

17

CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                      |                                                                                          |                                                     |                                       |                                           |         |                    |        |         |        |         |        |         |         |         |        | 
|------------------------------------- | ---------------------------------------------------------------------------------------- | --------------------------------------------------- | ------------------------------------- | ----------------------------------------- | ------- | ------------------ | ------ | ------- | ------ | ------- | ------ | ------- | ------- | ------- | ------ | 
|                                      |                                                                                          |                                                     |                                       |                                           |         | Year Ended May 31,
|                                      |                                                                                          |                                                     |                                       |                                           |         |                   
|(in thousands)                        |                                                                                          | 2003                                                |                                       | 2002                                      |         | 2001              
|                                      |                                                                                          |                                                     |                                       |                                           |         |                   
|CASH FLOWS FROM OPERATING ACTIVITIES: |                                                                                          |                                                     |                                       |                                           |         |                    |        |         |        |         |        |        
|                                      | Net income (loss)                                                                        |                                                     | $                                     | (14,986                                   | )       |                    | $      | 13,122  |        |         | $      | 30,713  |        
|                                      | Adjustments to reconcile net income (loss) to net cash
provided by operating activities: |                                                     |                                       |                                           |         |                    |        |         |        |         |        |         |        
|                                      |                                                                                          | Depreciation and amortization                       |                                       |                                           | 46,279  |                    |        |         | 60,781 |         |        |         | 76,856  |        
|                                      |                                                                                          | Loss on impairment of goodwill                      |                                       |                                           | 35,703  |                    |        |         |       |         |        |         |        |        
|                                      |                                                                                          | Loss on impairment of intangibles                   |                                       |                                           | 1,432   |                    |        |         |       |         |        |         |        |        
|                                      |                                                                                          | Provision for losses on accounts receivable         |                                       |                                           | 605     |                    |        |         | 2,930  |         |        |         | 2,479   |        
|                                      |                                                                                          | Gain on sale of rental and lease equipment          |                                       |                                           | (8,386  | )                  |        |         | (8,294 | )       |        |         | (10,226 | )      
|                                      |                                                                                          | Deferred income taxes                               |                                       |                                           | (12,638 | )                  |        |         | (1,126 | )       |        |         | 1,529   |        
|                                      |                                                                                          | Changes in operating assets and liabilities:        |                                       |                                           |         |                    |        |         |        |         |        |         |         |        
|                                      |                                                                                          |                                                     | Accounts receivable                   |                                           |         | 4,544              |        |         |        | 8,856   |        |         |         | 3,574   |       
|                                      |                                                                                          |                                                     | Other assets                          |                                           |         | (1,129             | )      |         |        | (122    | )      |         |         | 402     |       
|                                      |                                                                                          |                                                     | Accounts payable                      |                                           |         | (470               | )      |         |        | 448     |        |         |         | (2,578  | )     
|                                      |                                                                                          |                                                     | Accrued expenses                      |                                           |         | (923               | )      |         |        | (2,900  | )      |         |         | (5,315  | )     
|                                      |                                                                                          |                                                     | Deferred revenue                      |                                           |         | (883               | )      |         |        | 2,716   |        |         |         |        |       
|                                      |                                                                                          |                                                     |                                       |                                           |         |                    |        |         |        |         |        |         |        
|                                      |                                                                                          |                                                     |                                       | Net cash provided by operating activities |         |                    | 49,148 |         |        |         | 76,411 |         |         |         | 97,434 | 
|                                      |                                                                                          |                                                     |                                       |                                           |         |                    |        |         |        |         |        |         |        
|CASH FLOWS FROM INVESTING ACTIVITIES: |                                                                                          |                                                     |                                       |                                           |         |                    |        |         |        |         |        |        
|                                      | Proceeds from sale of rental and lease equipment                                         |                                                     |                                       | 24,005                                    |         |                    |        | 27,913  |        |         |        | 32,745  |        
|                                      | Proceeds from purchase price settlement                                                  |                                                     |                                       |                                          |         |                    |        |        |        |         |        | 20,800  |        
|                                      | Payments for purchase of rental and lease equipment                                      |                                                     |                                       | (26,653                                   | )       |                    |        | (51,159 | )      |         |        | (66,987 | )      
|                                      | Purchases of marketable securities                                                       |                                                     |                                       | (10,000                                   | )       |                    |        |        |        |         |        |        |        
|                                      | Payments for purchase of other property                                                  |                                                     |                                       | (917                                      | )       |                    |        | (87     | )      |         |        | (469    | )      
|                                      |                                                                                          |                                                     |                                       |                                           |         |                    |        |         |        |         |        |         |        
|                                      |                                                                                          |                                                     | Net cash used in investing activities |                                           |         | (13,565            | )      |         |        | (23,333 | )      |         |         | (13,911 | )     
|                                      |                                                                                          |                                                     |                                       |                                           |         |                    |        |         |        |         |        |         |        
|CASH FLOWS FROM FINANCING ACTIVITIES: |                                                                                          |                                                     |                                       |                                           |         |                    |        |         |        |         |        |        
|                                      | Decrease in short-term bank borrowings                                                   |                                                     |                                       |                                          |         |                    |        |        |        |         |        | (21,800 | )      
|                                      | Proceeds from issuance of common stock                                                   |                                                     |                                       | 242                                       |         |                    |        | 1,467   |        |         |        | 789     |        
|                                      | Payment for repurchase of common stock                                                   |                                                     |                                       |                                          |         |                    |        | (58     | )      |         |        | (2,981  | )      
|                                      |                                                                                          |                                                     |                                       |                                           |         |                    |        |         |        |         |        |         |        
|                                      |                                                                                          | Net cash provided by (used in) financing activities |                                       |                                           | 242     |                    |        |         | 1,409  |         |        |         | (23,992 | )      
|                                      |                                                                                          |                                                     |                                       |                                           |         |                    |        |         |        |         |        |         |        
|                                      | Net increase in cash and cash equivalents                                                |                                                     |                                       | 35,825                                    |         |                    |        | 54,487  |        |         |        | 59,531  |        
|                                      | Cash and cash equivalents at beginning of year                                           |                                                     |                                       | 115,623                                   |         |                    |        | 61,136  |        |         |        | 1,605   |        
|                                      |                                                                                          |                                                     |                                       |                                           |         |                    |        |         |        |         |        |         |        
|                                      | Cash and cash equivalents at end of year                                                 |                                                     | $                                     | 151,448                                   |         |                    | $      | 115,623 |        |         | $      | 61,136  |        
|                                      |                                                                                          |                                                     |                                       |                                           |         |                    |        |         |        |         |        |         |        

The accompanying notes are an integral part of these consolidated financial
statements.





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##### 



ELECTRO RENT 2003 ANNUAL REPORT

18

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended May 31, 2003, 2002 and 2001
(U.S. dollar amounts in thousands, except per share amounts)

Note 1: Summary Of Significant Accounting Policies

BUSINESS AND ORGANIZATION:Electro Rent Corporation primarily engages in the
short-term rental and the lease of state-of-the-art
electronic equipment. The Company maintains an equipment portfolio composed
primarily of general purpose test and measure-
ment instruments (T&M) and personal computers and servers (DP) purchased from
leading manufacturers. Another aspect of the
Companys business is the sale of equipment after its utilization for rental or
lease. The Companys wholly owned subsidiaries,
Genstar Rental Electronics, Inc., and ER International, Inc., act as the
Companys agents in Canada and Europe, respectively, for all of
these business activities.

The Companys customers are primarily located in the United States and operate
in various industry segments including aerospace
and defense, telecommunications, consulting and computer technology. During
fiscal 2003, 2002 and 2001 no customer accounted
for more than 10% of total revenues.

BASIS OF PRESENTATION:The consolidated financial statements include Electro
Rent Corporation and its wholly owned subsidiaries.
All intercompany balances and transactions have been eliminated. Certain
reclassifications have been made to the prior year
amounts to conform to the current year presentation. In 2003, the Company
reclassified approximately $2.5 million from accrued
expenses to common stock in the accompanying consolidated balance sheets for
tax benefits received on the exercise of stock
options between the fiscal years 1996 to 2003.

USE OF ESTIMATES:The preparation of financial statements in conformity with
accounting principles generally accepted in the United
States of America require management to make estimates and assumptions that
affect the reported amounts of assets and liabilities
as well as the disclosures of contingent assets and liabilities as of the date
of these financial statements and the reported amounts
of revenues and expenses during the reporting period. Managements use of
estimates also affects the reported amounts of revenues
and expenses during the reporting period. On a regular basis, management
reviews these estimates including those related to asset
lives and depreciation methods, impairment of long-lived assets including
rental and lease equipment and intangibles, allowance
for doubtful accounts, and contingencies and litigation. These estimates are
based on managements historical experience and on
various other assumptions believed to be reasonable under the circumstances.
Actual results may differ from these estimates under
different assumptions or conditions. Management believes, however, that the
estimates, including those for the above-listed items,
are reasonable.

REVENUE RECOGNITION:Rental and lease revenues are recognized in the month they
are due on the accrual basis of accounting.
Rentals and leases are billed to customers in advance, and unearned billings
are recorded as deferred revenue. Other revenues con-
sist of billings to customers for equipment sales, delivery, or repairs, which
are recognized in the period in which the respective
equipment is shipped and risk of loss is passed to the customer or the services
are performed. Interest income on cash equivalents
is recognized in the period earned.

RENTAL AND LEASE EQUIPMENT AND OTHER PROPERTY:Assets are generally stated at
cost, less accumulated depreciation. Upon retire-
ment or disposal of assets, the cost and the related allowance for depreciation
are eliminated from the accounts and any gain or loss
is recognized. Depreciation of rental and lease equipment and other property is
computed using the straight-line and sum-of-the-
years-digits methods over the estimated useful lives of the respective
equipment. New rental and lease equipment is depreciated
over three to seven years, and used equipment over two to six years, depending
on the type of equipment. Normal maintenance and
repairs are expensed as incurred. Rental and lease equipment at net book value
comprised $75,314 of T&M equipment and $12,030
of DP equipment at May 31, 2003, and $99,208 of T&M equipment and $20,467 of DP
equipment at May 31, 2002.

CAPITAL LEASES:The Company has certain customer leases providing bargain
purchase options, which are accounted for as sales-
type leases. At May 31, 2003 and 2002 investment in sales-type leases of $671
and $1,321 net of deferred interest of $39 and $77,
is included in other assets. Interest income is recognized over the life of the
lease using the effective interest method.

INCOME TAXES:The Company recognizes a liability or asset for the deferred tax
consequences of temporary differences between the
tax basis of assets and liabilities and their reported amounts in the financial
statements. These temporary differences will result in
taxable or deductible amounts in future years when reported amounts of the
assets or liabilities are recovered or settled. The
deferred tax assets are periodically reviewed for recoverability.





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ELECTRO RENT 2003 ANNUAL REPORT

19

FAIR VALUE OF FINANCIAL INSTRUMENTS:The carrying amount of cash and cash
equivalents and accounts receivable approximates fair
value due to the short maturity of these instruments. Cash and short-term
investments with original maturities of 90 days or less are
considered to be cash equivalents.

IMPAIRMENT OF ASSETS:The carrying value of equipment held for rental and lease
is assessed quarterly or when factors indicating
impairment are present. The Company recognizes impairment losses on equipment
held for rental and lease when the expected
future undiscounted cash flows are less than the assets carrying value, in
which case the asset is written down to its estimated
fair value.

GOODWILL AND INTANGIBLES:Until May 31, 2001, goodwill was amortized over a
period of 40 years and intangibles were amortized
on a straight-line basis over their estimated useful lives, to a residual of
zero. On June 1, 2001, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 142 Goodwill and Other Intangible
Assets, which provides that intangible assets with
finite useful lives be amortized over that life and that goodwill and
intangible assets with indefinite lives not be amortized, but
will be tested at least annually for impairment. We conducted impairment
reviews of goodwill and other intangible assets in fiscal
2003. As a result of the reviews, we wrote off $35,703 of goodwill and $1,432
of intangible assets in fiscal 2003. (See Note 3.)

CASH AND CASH EQUIVALENTS:All highly liquid investments purchased with an
original maturity of three months or less at the
date acquired are cash equivalents. These investments, consisting primarily of
money market funds, are stated at cost, which
approximates market.

MARKETABLE SECURITIES:The Company considers its marketable securities
available-for-sale as defined in SFAS No. 115,Accounting
for Certain Investments in Debt and Equity Securities, and, accordingly, they
are carried at fair value. Realized gains and losses and
declines in value considered to be other than temporary are included in income.
The cost of securities sold is based on the specific
identification method. There were no material realized or unrealized gains or
losses, nor any material differences between esti-
mated fair values, based on quoted market prices, and the costs of securities
in the investment portfolio as of May 31, 2003. The
Companys marketable securities consist of auction rate securities, which carry
dividend rates that reset every 49 days but have
contractual maturities of greater than one year.

ALLOWANCE FOR DOUBTFUL ACCOUNTS:The Company maintains allowances for doubtful
accounts for estimated losses resulting
from the inability of customers to make rental and lease payments. These
estimates are primarily based on the amount of time that
has lapsed since the related payments were due as well as specific knowledge
related to the ability of customers to make the
required payments. If the financial condition of the Companys customers were
to deteriorate, additional allowances could be
required that would reduce income. Conversely, if the financial condition of
the customers were to improve or if legal remedies to
collect past due amounts were more successful than expected, the allowance for
doubtful accounts may need to be reduced and
income would be increased.

CONCENTRATION OF CREDIT RISK:Financial instruments that potentially subject
the Company to concentration of credit risk consist
primarily of cash equivalents, marketable securities and trade accounts
receivable. The Company invests excess cash primarily in
money market funds of major financial institutions and auction rate securities
of rated or investment grade corporate issuers. Excess
cash of $145.6 million was invested in eight large U.S. Government money market
funds, $5.0 million was invested in a large
municipal money market fund, and $10.0 million was invested in auction rate
securities as of May 31, 2003. For trade accounts
receivable, the Company sells primarily on 30-day terms, performs credit
evaluation procedures on each customers individual trans-
actions and requires security deposits or personal guarantees from its
customers when significant credit risks are identified.
Typically, most customers are large, established firms. An allowance for
potential credit losses is maintained.

The Company purchases rental and lease equipment from numerous vendors. During
fiscal 2003 and 2002, Agilent Technologies,
Inc. was the only vendor that accounted for more than 10% of such purchases.

DERIVATIVE FINANCIAL INSTRUMENTS:During 1998, the Financial Accounting
Standards Board (FASB) issued SFAS No. 133,
Accounting for Derivative Instruments and for Hedging Activities, which
establishes new standards for reporting derivative and
hedging information. The standard as amended in SFAS No. 138 is effective for
periods beginning after June 15, 2000 and was
adopted by the Company in fiscal 2002. The Company did not have any derivative
financial instruments as of May 31, 2003 or 2002.
The adoption of this standard did not have a significant impact on the
consolidated financial statements.





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ELECTRO RENT 2003 ANNUAL REPORT

20

COMPREHENSIVE INCOME:SFAS No. 130, Reporting Comprehensive
Income,establishes standards to measure all changes in
equity that result from transactions and other economic events other than
transactions with shareholders. Comprehensive income
is the total of net income and all other non-shareholder changes in equity.
Other than net income, the Company has no compre-
hensive income.

NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE:Basic earnings per share
(EPS) is computed as net income divided by
the weighted average number of shares of common stock outstanding for the
reported year, excluding the dilutive effects of stock
options and other potentially dilutive securities. Diluted EPS is computed as
net income divided by the weighted average number of
shares outstanding of common stock and common stock equivalents for the
reported year. Common stock equivalents result from
the dilutive stock options computed using the treasury stock method.

CASH FLOW:Supplemental disclosures of cash paid during the year for:

|             |  |      |       |      |  |      |       |  |  |   |        | 
|------------ |  | ---- | ----- | ---- |  | ---- | ----- |  |  | - | ------ | 
|             |  | 2003 |       | 2002 |  | 2001
|             |  |      |       |      |  |     
|Interest     |  | $    | 10    |      |  | $    | 9     |  |  | $ | 271    | 
|Income taxes |  |      | 3,962 |      |  |      | 4,666 |  |  |   | 19,095 | 

Supplemental disclosure of non-cash investing and financing activities: The
Company acquired equipment of $6,243, $6,626, and $25,623,
at May 31, 2003, 2002 and 2001, respectively, which was paid for during the
subsequent year. The Company recorded the tax benefit
of $2,535 for employee stock options exercised which increased common stock in
the fiscal year ended May 31, 2003.

RECENT PRONOUNCEMENTS:In August 2001, the FASB issued SFAS No. 144,Accounting
for the Impairment or Disposal of Long-Lived
Assets, which is effective for the fiscal years beginning after December 15,
2001. The Company adopted SFAS No. 144 as required
on June 1, 2002. This standard did not have a significant effect on the
Companys consolidated financial statements.

In June 2002, the FASB issued SFAS No. 146,Accounting for Costs Associated
with Exit or Disposal Activities.SFAS No. 146
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. SFAS
No. 146 eliminates the definition and requirement for recognition of exit costs
in Emerging Issues Task Force Issue No. 94-3 where
a liability for an exit is recognized at the date of an entitys commitment to
an exit plan. This statement is effective for exit or
disposal activities initiated after December 31, 2002. Adoption of SFAS No. 146
did not have a significant effect on the Companys
consolidated financial statements.

In November 2002, the FASB issued FASB Interpretation (FIN) No.
45,Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees and Indebtedness of Others, an
interpretation of SFAS Nos. 5, 57 and 107, and rescission
of FIN No. 34, Disclosure of Indirect Guarantees of Indebtedness of
Others.FIN No. 45 elaborates on the disclosures to be made
by the guarantor in its interim and annual financial statements about its
obligations under certain guarantees that it has issued.
It also requires that a guarantor recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken
in issuing the guarantee. The initial recognition and measurement provisions of
the interpretation are applicable on a prospective
basis to guarantees issued or modified after December 31, 2002, while the
provisions of the disclosure requirements are effective for
financial statements of interim or annual periods ending after December 15,
2002. Adoption of such interpretation did not have a
material impact on the Companys results of operations, financial position or
cash flows.

In December 2002, the FASB issued SFAS No. 148,Accounting for Stock-Based
Compensation-Transition and Disclosure-an amend-
ment of FASB Statement No. 123 SFAS No. 148 provides alternative methods of
transition for entities that voluntarily change to the
fair value method of accounting for stock-based employee compensation, and it
also amends the disclosure provisions of SFAS No.
123 to require prominent disclosure about the effects of an entitys accounting
policy decisions with respect to stock-based
employee compensation in both annual and interim reporting. The amendments are
effective for fiscal years ending after December
15, 2002. The Company adopted the disclosure only provisions of SFAS No. 148 on
March 1, 2003.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities.
SFAS No. 149 amends and clarifies financial accounting and reporting for
derivative instruments, including certain derivative instru-
ments embedded in other contracts, and for hedging activities under FASB
Statement No. 133,Accounting for Derivative
Instruments and Hedging Activities. The provisions of SFAS No. 149 are
effective for contracts entered into or modified after





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ELECTRO RENT 2003 ANNUAL REPORT

21

June 30, 2003, and for hedging relationships designated after June 30, 2003.
The Company believes the adoption of such standard
will not have a material impact on its financial position, results of
operations or cash flows.

In May 2003, the FASB issued SFAS No. 150,Accounting for Certain Instruments
with Characteristics of Both Liabilities and Equity,
which establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both
liabilities and equity. SFAS No. 150 requires that an issuer classify a
financial instrument that is within its scope, which may have
previously been reported as equity, as a liability (or an asset in some
circumstances). This statement is effective for financial instru-
ments entered into or modified after May 31, 2003, and otherwise is effective
at the beginning of the first interim period beginning
after June 15, 2003, except for mandatory redeemable financial instruments of
nonpublic companies. The Company does not believe
that the adoption of SFAS No. 150 will have a significant impact on its
financial statements.

STOCK-BASED COMPENSATION:The Company applies the intrinsic-value-based method
prescribed by Accounting Principles Board
Opinion No. 25,Accounting for Stock Issued to Employees, in accounting for
employee stock options. Accordingly, compensation
expense is recognized only when options are granted with a discounted exercise
price. Any such compensation expense is recog
nized ratably over the associated service period, which is generally the option
vesting term.

The Companys net earnings and earnings per share would have been reduced to
the pro forma amounts shown below if compensa-
tion cost had been determined based on the fair value at the grant dates in
accordance with SFAS Nos. 123 and 148,Accounting for
Stock-Based Compensation.

|                                                                           |             |   |         |      |      |   |        |     |  |   |        |      | 
|-------------------------------------------------------------------------- | ----------- | - | ------- | ---- | ---- | - | ------ | --- |  | - | ------ | ---- | 
|                                                                           |             |   | 2003    |      | 2002 |   | 2001  
|                                                                           |             |   |         |      |      |   |       
|Net income (loss), as reported                                             |             | $ | (14,986 | )    |      | $ | 13,122 |     |  | $ | 30,713 |     
|Less: compensation cost determined
under the fair
value method, net of tax |             |   | 931     |      |      |   | 541    |     |  |   | 930    |     
|                                                                           |             |   |         |      |      |   |        |     |  |   |        |     
|Pro forma net income (loss)                                                |             | $ | (15,917 | )    |      | $ | 12,581 |     |  | $ | 29,783 |     
|                                                                           |             |   |         |      |      |   |        |     |  |   |        |     
|Basic earnings (loss) per share:                                           |             |   |         |      |      |   |        |     |  |   |        |     
|                                                                           | As reported |   | $       | (.60 | )    |   | $      | .53 |  |   | $      | 1.26 | 
|                                                                           | Pro forma   |   |         | (.64 | )    |   |        | .51 |  |   |        | 1.22 | 
|Diluted earnings (loss) per share:                                         |             |   |         |      |      |   |        |     |  |   |        |     
|                                                                           | As reported |   |         | (.60 | )    |   |        | .53 |  |   |        | 1.24 | 
|                                                                           | Pro forma   |   |         | (.64 | )    |   |        | .51 |  |   |        | 1.21 | 

The fair value of these options was estimated at grant date using a
Black-Scholes option pricing model with the following weighted-
average assumptions:

|                                |  |      |      |      |  |      |      |   |  |  |      |  
|------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                                |  | 2003 |      | 2002 |  | 2001
|                                |  |      |      |      |  |     
|Average risk-free interest rate |  |      | 3.8  | %    |  |      | 4.8  | % |  |  | 6.2  | %
|Expected dividend yield         |  |      | 0    |      |  |      | 0    |   |  |  | 0    |  
|Expected volatility             |  |      | 45.5 |      |  |      | 44.1 |   |  |  | 44.4 |  
|Expected life in years          |  |      | 4.8  |      |  |      | 4.2  |   |  |  | 7.2  |  



| |  | The weighted average fair value per option granted was $4.93 in 2003, $6.81 in
2002 and $6.62 in 2001.                                                                                                                                                                                                            
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Note 2: Restructuring Charge                                                                                                                                                                                                                                                                                      
|
| |  | Due to the prolonged downturn in our industry, in May 2003 the Company
restructured our business as part of its continuing
program to create efficiencies within our operations. The Company recorded
restructuring charges of $821 in selling, general and
administrative expenses, which included the following:





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ELECTRO RENT 2003 ANNUAL REPORT

22

Reducing the Companys workforce by approximately 27 employees, mainly in the
Duluth, Georgia, warehouse and sales office,
resulting in a severance charge of approximately $220. Approximately $113 was
paid in May 2003, and the remainder will be
paid in fiscal 2004.

Consolidating the Companys facilities through the closing of the Duluth,
Georgia, warehouse, from a total of approximately
435,000 square feet into approximately 399,000 square feet. Property and
equipment that was disposed of or removed from
operations resulted in a charge of $31 and consisted primarily of leasehold
improvements, equipment and furniture and fixtures.
In addition, we incurred a charge of $570 associated with the lease related to
the closed facility, which represents the fair value
of the liability determined based on the remaining lease rentals, reduced by
estimated sublease rentals. Amounts accrued (net of
estimated sublease proceeds) related to the facility closure will be paid over
the remaining lease term through May 2005.

|                       |  |         |     |          |  |          |      |              |  |   |     |   |  |           |     | 
|---------------------- |  | ------- | --- | -------- |  | -------- | ---- | ------------ |  | - | --- | - |  | --------- | --- | 
|                       |  |         |     |          |  |          |      |              |  |   |     |   |  | Remaining
|                       |  |         |     |          |  |          |      |              |  |   |     |   |  | Liability
|                       |  |         |     |          |  |          |      |              |  |   |     |   |  | Balances 
|                       |  | Total   |     | Cash     |  | Non-Cash |      | as of       
|                       |  | Charges |     | Payments |  | Charges  |      | May 31, 2003
|Severance              |  | $       | 220 |          |  | $        | (113 | )            |  |   | 0   |   |  | $         | 107 | 
|Property and equipment |  |         | 31  |          |  |          | 0    |              |  | $ | (31 | ) |  |           | 0   | 
|Lease commitments      |  |         | 570 |          |  |          | 0    |              |  |   | 0   |   |  |           | 570 | 
|                       |  |         |     |          |  |          |      |              |  |   |     |   |  |           |     | 
|                       |  | $       | 821 |          |  | $        | (113 | )            |  | $ | (31 | ) |  | $         | 677 | 

Note 3: Goodwill and Other Intangible Assets

In July 2001, the FASB issued SFAS No. 141, Business Combinations. SFAS No.
141 requires the purchase method of accounting
for business combinations initiated after June 30, 2001 and eliminates the
pooling-of-interests method. SFAS No. 141 also specifies
the types of acquired intangible assets that are required to be recognized and
reported separately from goodwill and those that are
required to be included in goodwill. The Company adopted SFAS No. 141 in the
first quarter of fiscal 2002. Adoption of SFAS No. 141
did not have a significant impact on the financial statements.

In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 142 requires, among other things, the
discontinuance of goodwill amortization and the testing for impairment of
goodwill at least annually. The Company adopted SFAS
No.142 in the first quarter of fiscal 2002. The impact of SFAS No. 142 on the
Companys financial position and results of operations
was primarily the elimination of annual goodwill amortization of $1,400.

In accordance with SFAS No. 142, the Company performed impairment testing for
goodwill and other intangible assets during the
quarter ended May 31, 2003. Recorded goodwill related primarily to the GE
Capital Technology Management Services (TMS) acqui-
sition in fiscal 1998, and other intangible assets related to the Genstar
Rental Electronics, Inc. acquisition in fiscal 1995. Since the
Company operates in a single business segment as a single business unit, the
determination of whether an impairment of goodwill
existed was based on a comparison of the fair value of the entire Company to
the carrying value of our net assets. In estimating the
fair value of the entire Company, the Companys management reviewed the average
and closing stock prices for our Common Stock,
as well as other factors. Because the fair value of the entire Company was
determined to be less than the carrying value of our net
assets, the Company was required to record an impairment loss on goodwill of
$35.7 million. Additionally, because the Genstar
trade name and customer contracts were deemed to no longer have value to the
Company, we were required to record an impair-
ment loss on intangible assets of $1.4 million. As a result of these impairment
losses recorded in the quarter ended May 31, 2003,
the balances for goodwill and intangible assets were reduced to zero. There
were no charges for impairment of goodwill and other
intangible assets in fiscal 2002.





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ELECTRO RENT 2003 ANNUAL REPORT

23

Aggregate amortization expense on intangible assets, prior to their write-off,
was approximately $130 for the year ended May 31,
2003. The following sets forth the intangible assets by major class as of May
31, 2002:

|                                             |  |          |       |              |  |   |        |  
|-------------------------------------------- |  | -------- | ----- | ------------ |  | - | ------ | -
|                                             |  | Gross    |       |              |  |  
|                                             |  | Carrying |       | Accumulated 
|                                             |  | Amount   |       | Amortization
|                                             |  |          |       |             
|Asset class:                                 |  |          |       |              |  |   |        |  
|Customer contracts and related relationships |  | $        | 4,500 |              |  | $ | (3,920 | )
|Trade name                                   |  |          | 2,000 |              |  |   | (1,012 | )
|                                             |  |          |       |              |  |   |        |  
|Total intangibles                            |  | $        | 6,500 |              |  | $ | (4,942 | )

The following table presents net income on a comparable basis, after adjustment
for goodwill amortization for the fiscal years
ended May 31:

|                                  |                                                    |   |         |       |      |   |        |      |  |   |        |      | 
|--------------------------------- | -------------------------------------------------- | - | ------- | ----- | ---- | - | ------ | ---- |  | - | ------ | ---- | 
|                                  |                                                    |   | 2003    |       | 2002 |   | 2001  
|                                  |                                                    |   |         |       |      |   |       
|Reported net income (loss)        |                                                    | $ | (14,986 | )     |      | $ | 13,122 |      |  | $ | 30,713 |     
|                                  | Add back: goodwill amortization, net
of tax effect |   |         | 0     |      |   |        | 0    |  |   |        | 857  | 
|                                  |                                                    |   |         |       |      |   |        |      |  |   |        |     
|Adjusted net income (loss)        |                                                    | $ | (14,986 | )     |      | $ | 13,122 |      |  | $ | 31,570 |     
|                                  |                                                    |   |         |       |      |   |        |      |  |   |        |     
|Basic earnings (loss) per share   |                                                    |   |         |       |      |   |        |      |  |   |        |     
|                                  | As reported                                        |   | $       | (0.60 | )    |   | $      | 0.53 |  |   | $      | 1.26 | 
|                                  | As adjusted                                        |   | $       | (0.60 | )    |   | $      | 0.53 |  |   | $      | 1.29 | 
|Diluted earnings (loss) per share |                                                    |   |         |       |      |   |        |      |  |   |        |     
|                                  | As reported                                        |   | $       | (0.60 | )    |   | $      | 0.53 |  |   | $      | 1.24 | 
|                                  | As adjusted                                        |   | $       | (0.60 | )    |   | $      | 0.53 |  |   | $      | 1.28 | 

Note 4: Borrowings

On November 28, 2002, the Company renewed its 364-day agreement with a bank to
provide a revolving line of credit for $10,000,
subject to certain restrictions, to meet potential equipment acquisition needs
as well as working capital and general corporate
requirements. The interest rate on the line of credit is based on the prime
rate or LIBOR, and the Company had no borrowings out
standing during the fiscal years ended May 31, 2003 and 2002.

Derivative Positions  The Company entered into various interest rate
protection agreements, which all expired during fiscal 2001.
The Companys exposure under these agreements was limited to the impact of
variable interest rate fluctuations and the periodic
settlement of amounts due under these agreements if the other parties failed to
perform. There were no derivative financial instru
ments outstanding as of May 31, 2003, 2002 or 2001.

Note 5: Income Taxes

The provision (benefit) for income taxes consists of the following for the
fiscal years ended May 31:

|         |         |   |        |         |      |   |       |       |   |   |        |        | 
|-------- | ------- | - | ------ | ------- | ---- | - | ----- | ----- | - | - | ------ | ------ | 
|         |         |   | 2003   |         | 2002 |   | 2001 
|         |         |   |        |         |      |   |      
|Current  |         |   |        |         |      |   |       |       |   |   |        |       
|         | Federal |   | $      | 2,912   |      |   | $     | 4,939 |   |   | $      | 15,131 | 
|         | State   |   |        | 402     |      |   |       | 991   |   |   |        | 2,162  | 
|Deferred |         |   |        |         |      |   |       |       |   |   |        |       
|         | Federal |   |        | (11,105 | )    |   |       | (985  | ) |   |        | 1,338  | 
|         | State   |   |        | (1,533  | )    |   |       | (141  | ) |   |        | 191    | 
|         |         |   |        |         |      |   |       |       |   |   |        |       
|         |         | $ | (9,324 | )       |      | $ | 4,804 |       |   | $ | 18,822 |       





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ELECTRO RENT 2003 ANNUAL REPORT

24

A reconciliation of the statutory federal income tax rate to the effective tax
rate is as follows for the fiscal years ended May 31:

|                                                                                      |  |      |      |      |  |      |       |   |  |  |      |  
|------------------------------------------------------------------------------------- |  | ---- | ---- | ---- |  | ---- | ----- | - |  |  | ---- | -
|                                                                                      |  | 2003 |      | 2002 |  | 2001
|                                                                                      |  |      |      |      |  |     
|Statutory federal rate                                                                |  |      | 35.0 | %    |  |      | 35.0  | % |  |  | 35.0 | %
|State taxes, net of federal benefit                                                   |  |      | 4.7  |      |  |      | 5.0   |   |  |  | 5.0  |  
|Change in tax estimates on existing local, state,
federal and foreign tax liabilities |  |      | 2.1  |      |  |      | (11.2 | ) |  |  |     |  
|Non-deductible portion of impairment loss                                             |  |      | (5.2 | )    |  |      |      |   |  |  |     |  
|Other  net                                                                           |  |      | 1.8  |      |  |      | (2.0  | ) |  |  | (2.0 | )
|                                                                                      |  |      |      |      |  |      |       |   |  |  |      |  
|Effective tax rate                                                                    |  |      | 38.4 | %    |  |      | 26.8  | % |  |  | 38.0 | %
|                                                                                      |  |      |      |      |  |      |       |   |  |  |      |  

The tax effects of temporary differences that give rise to significant portions
of the net deferred tax liabilities at May 31, 2003 and 2002 are as follows:

|                             |                                           |   |        |         |      |   |         |         |  
|---------------------------- | ----------------------------------------- | - | ------ | ------- | ---- | - | ------- | ------- | -
|                             |                                           |   | 2003   |         | 2002
|                             |                                           |   |        |         |     
|Deferred tax assets:         |                                           |   |        |         |      |   |         |        
|                             | Goodwill and intangible assets            |   | $      | 8,306   |      |   | $       | (4,290  | )
|                             | Allowance for doubtful accounts           |   |        | 428     |      |   |         | 984     |  
|                             | Net operating loss carry forwards         |   |        | 386     |      |   |         | 646     |  
|                             | Deferred compensation and benefits        |   |        | 962     |      |   |         | 781     |  
|                             | Other                                     |   |        | 137     |      |   |         | 68      |  
|                             |                                           |   |        |         |      |   |         |         |  
|                             |                                           |   | 10,219 |         |      |   | (1,811  | )      
|                             |                                           |   |        |         |      |   |         |         |  
|Deferred tax liabilities:    |                                           |   |        |         |      |   |         |        
|                             | Accumulated depreciation and amortization |   |        | (13,398 | )    |   |         | (14,006 | )
|                             |                                           |   |        |         |      |   |         |         |  
|Net deferred tax liabilities |                                           | $ | (3,179 | )       |      | $ | (15,817 | )      
|                             |                                           |   |        |         |      |   |         |         |  

Net operating loss carry forwards for federal income tax reporting purposes
approximate $1,134 at May 31, 2003 and are available for use against taxable
income through 2006. The utilization of operating loss carry forwards is
limited to $356 per year for federal income tax reporting purposes.

Note 6: Computation of Earnings Per Share

Following is a reconciliation of the denominator used in the computation of
basic and diluted EPS:

|                           |                                                                                     |         |         |        |      |      |        |        |     |   |        |        |      | 
|-------------------------- | ----------------------------------------------------------------------------------- | ------- | ------- | ------ | ---- | ---- | ------ | ------ | --- | - | ------ | ------ | ---- | 
|                           |                                                                                     |         |         | 2003   |      | 2002 |        | 2001  
|                           |                                                                                     |         |         |        |      |      |        |       
|Denominator:               |                                                                                     |         |         |        |      |      |        |        |     |   |        |       
|                           | Denominator for basic earnings per share-weighted
average common shares outstanding |         |         | 24,810 |      |      |        | 24,602 |     |   |        | 24,416 |     
|                           | Effect of dilutive-options                                                          |         |         |       |      |      |        | 235    |     |   |        | 337    |     
|                           |                                                                                     |         |         |        |      |      |        |        |     |   |        |        |     
|                           |                                                                                     |         | 24,810  |        |      |      | 24,837 |        |     |   | 24,753 |       
|                           |                                                                                     |         |         |        |      |      |        |        |     |   |        |        |     
|Net income (loss)          |                                                                                     | $       | (14,986 | )      |      | $    | 13,122 |        |     | $ | 30,713 |       
|Earnings (loss) per share: |                                                                                     |         |         |        |      |      |        |        |     |   |        |       
|                           |                                                                                     | Basic   |         | $      | (.60 | )    |        | $      | .53 |   |        | $      | 1.26 | 
|                           |                                                                                     | Diluted |         | $      | (.60 | )    |        | $      | .53 |   |        | $      | 1.24 | 
|                           |                                                                                     |         |         |        |      |      |        |        |     |   |        |        |     





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ELECTRO RENT 2003 ANNUAL REPORT

25

Certain options to purchase the Companys common stock were not included in the
computation of diluted earnings per share because to do so would have been
antidilutive. The quantity of such options is 1,131,408, 654,823, and 387,661
at May 31, 2003, 2002, and 2001, respectively.

Note 7: Rentals Under Noncancellable Operating Leases

The Company rents equipment on a short-term basis and leases equipment for
periods greater than 12 months. Such leases provide the lessee with the option
of renewing the agreement for periods of up to twelve months or purchasing the
equipment at fair market value at the end of the initial or renewal term. The
Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of customers to make rental and lease payments.
These estimates are primarily based on the amount of time that has lapsed since
the related payments were due as well as specific knowledge related to the
ability of customers to make the required payments. If the financial condition
of the Companys customers were to deteriorate, additional allowances could be
required that would reduce income. Conversely, if the financial condition of
the customers were to improve or if legal remedies to collect past due amounts
were more successful than expected, the allowance for doubtful accounts may
need to be reduced and income would be increased. A roll-forward of the
allowance is as follows at May 31:

|                                |  |      |        |      |  |      |        |   |  |   |        |  
|------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                |  | 2003 |        | 2002 |  | 2001
|                                |  |      |        |      |  |     
|Beginning of year               |  | $    | 2,461  |      |  | $    | 1,840  |   |  | $ | 4,866  |  
|Provision for doubtful accounts |  |      | 605    |      |  |      | 2,930  |   |  |   | 2,479  |  
|Write-offs                      |  |      | (1,960 | )    |  |      | (2,309 | ) |  |   | (5,505 | )
|                                |  |      |        |      |  |      |        |   |  |   |        |  
|End of year                     |  | $    | 1,106  |      |  | $    | 2,461  |   |  | $ | 1,840  |  
|                                |  |      |        |      |  |      |        |   |  |   |        |  

The Companys cost of equipment under operating leases at May 31, 2003, with
remaining noncancellable lease terms of more than one year, is $21,145 before
accumulated depreciation of $9,373, and the net book value is $11,772.

A schedule of minimum future rentals to be received on noncancellable operating
leases with remaining lease terms of more than one year as of May 31, 2003 is
as follows:

|     |  |   |        | 
|---- |  | - | ------ | 
|2004 |  | $ | 9,753  | 
|2005 |  |   | 6,700  | 
|2006 |  |   | 1,773  | 
|     |  |   |        | 
|     |  | $ | 18,226 | 
|     |  |   |        | 

Note 8: Other Property

Other property, at cost, consists of the following at May 31:

|                                                 |  |      |         |      |  |   |         |  
|------------------------------------------------ |  | ---- | ------- | ---- |  | - | ------- | -
|                                                 |  | 2003 |         | 2002
|                                                 |  |      |         |     
|Land                                             |  | $    | 6,985   |      |  | $ | 6,985   |  
|Buildings                                        |  |      | 13,781  |      |  |   | 13,682  |  
|Furniture and other equipment                    |  |      | 6,259   |      |  |   | 6,992   |  
|Leasehold improvements                           |  |      | 381     |      |  |   | 1,494   |  
|                                                 |  |      |         |      |  |   |         |  
|                                                 |  |      | 27,406  |      |  |   | 29,153  |  
|Less  accumulated depreciation and amortization |  |      | (10,997 | )    |  |   | (12,241 | )
|                                                 |  |      |         |      |  |   |         |  
|                                                 |  | $    | 16,409  |      |  | $ | 16,912  |  
|                                                 |  |      |         |      |  |   |         |  





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ELECTRO RENT 2003 ANNUAL REPORT

26

Note 9: Commitments and Contingencies

The Company leases certain facilities under various operating leases. Most of
the lease agreements provide the Company with the option of renewing its lease
at the end of the initial lease term, at the fair rental value, for periods of
up to five years. In most cases, management expects that in the normal course
of business facility leases will be renewed or replaced by other leases.

Minimum payments under these leases, exclusive of property taxes and insurance,
are as follows:

|     |  |   |       | 
|---- |  | - | ----- | 
|2004 |  | $ | 952   | 
|2005 |  |   | 744   | 
|2006 |  |   | 42    | 
|     |  |   |       | 
|     |  | $ | 1,738 | 
|     |  |   |       | 

Rent expense was $2,643, $2,698, $2,969 in fiscal 2003, 2002, and 2001,
respectively.

The Company is subject to legal proceedings and business disputes involving
ordinary and routine claims. The ultimate legal and financial liability with
respect to such matters cannot be estimated with certainty and requires the use
of estimates in recording liabilities for potential litigation settlements.
Estimates for losses from litigation are made after consultation with outside
counsel. If estimates of potential losses increase or the related facts and
circumstances change in the future, the Company may be required to record
either more or less litigation expense. It is managements opinion that none of
the open matters at May 31, 2003 will have a material adverse effect on the
Companys financial condition or operations.

Note 10: Stock Option Plans

The Company has Stock Option Plans (the Plans) that authorize the Board of
Directors to grant options for 3,667,500 shares of the Companys common stock,
of which 1,142,312 were available for future grants at May 31, 2003. The Plans
provide for both incentive stock options, which may be granted only to
employees, and non-statutory stock options, which may be granted to directors
and consultants who are not employees. Pursuant to the Plans, options have been
granted to directors, officers and key employees at prices not less than 100%
of the fair market value on the day of grant. Options are exercisable at
various dates over a five-year or ten-year period from the date of grant. The
Plans provide for a variety of vesting dates with the majority of the options
vesting at a rate of one-third per year over a period of three years or
one-fourth per year over a period of four years from the date of grant. All
outstanding options expire at dates ranging from October 2003 to July 2010. The
following table summarizes certain information relative to options for common
stock.

|                                       |           |  |           |         |                |   |          |       |                |  |           |          |                |   |       |       |  |  |           |          |   |   |       |       | 
|-------------------------------------- | --------- |  | --------- | ------- | -------------- | - | -------- | ----- | -------------- |  | --------- | -------- | -------------- | - | ----- | ----- |  |  | --------- | -------- | - | - | ----- | ----- | 
|                                       |           |  | 2003      |         | 2002           |   | 2001    
|                                       |           |  |           |         |                |   |         
|                                       |           |  |           |         |                |   | Weighted |       |                |  |           |          | Weighted       |   |       |       |  |  | Weighted 
|                                       |           |  |           |         |                |   | Average  |       |                |  |           |          | Average        |   |       |       |  |  | Average  
|                                       |           |  | Shares    |         | Exercise Price |   | Shares   |       | Exercise Price |  | Shares    |          | Exercise Price
|                                       |           |  |           |         |                |   |          |       |                |  |           |          |               
|Options outstanding, beginning of year |           |  | 783,269   |         |                | $ | 12.15    |       |                |  | 1,068,794 |          |                | $ | 10.35 |       |  |  | 1,100,847 |          |   | $ | 9.19  |      
|                                       | Granted   |  |           | 528,704 |                |   |          | 11.27 |                |  |           | 7,574    |                |   |       | 16.44 |  |  |           | 172,640  |   |   |       | 11.60 | 
|                                       | Exercised |  |           | (46,281 | )              |   |          | 5.22  |                |  |           | (276,361 | )              |   |       | 5.31  |  |  |           | (192,693 | ) |   |       | 4.52  | 
|                                       | Forfeited |  |           | (98,687 | )              |   |          | 14.61 |                |  |           | (16,738  | )              |   |       | 12.13 |  |  |           | (12,000  | ) |   |       | 14.97 | 
|                                       |           |  |           |         |                |   |          |       |                |  |           |          |                |   |       |       |  |  |           |          |   |   |       |      
|Options outstanding, end of year       |           |  | 1,167,005 |         |                | $ | 11.82    |       |                |  | 783,269   |          |                | $ | 12.15 |       |  |  | 1,068,794 |          |   | $ | 10.35 |      
|                                       |           |  |           |         |                |   |          |       |                |  |           |          |                |   |       |       |  |  |           |          |   |   |       |      
|Options exercisable at end of year     |           |  | 580,055   |         |                | $ | 12.34    |       |                |  | 667,429   |          |                | $ | 12.25 |       |  |  | 799,494   |          |   | $ | 9.56  |      
|                                       |           |  |           |         |                |   |          |       |                |  |           |          |                |   |       |       |  |  |           |          |   |   |       |      





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ELECTRO RENT 2003 ANNUAL REPORT

27

The following summarizes information regarding stock options outstanding at May
31, 2003:

|                         |  |                     |           |                     |  |           |     |             |  |          |       |  |  |          |         |  |  |   |       | 
|------------------------ |  | ------------------- | --------- | ------------------- |  | --------- | --- | ----------- |  | -------- | ----- |  |  | -------- | ------- |  |  | - | ----- | 
|                         |  | Options Outstanding |           | Options Exercisable
|                         |  |                     |           |                    
|                         |  |                     |           |                     |  | Weighted  |     |             |  |          |       |  |  |          |         |  |  |  
|                         |  |                     |           |                     |  | Average   |     | Weighted    |  |          |       |  |  | Weighted
|                         |  |                     |           |                     |  | Remaining |     | Average     |  |          |       |  |  | Average 
|                         |  | Number              |           | Contractual         |  | Exercise  |     | Number      |  | Exercise
|Range of Exercise Prices |  | Outstanding         |           | Life                |  | Price     |     | Exercisable |  | Price   
|                         |  |                     |           |                     |  |           |     |             |  |         
|$  4.36  $11.30         |  |                     | 169,804   |                     |  |           | 2.5 |             |  | $        | 8.54  |  |  |          | 156,804 |  |  | $ | 8.47  | 
|$11.31  $11.50          |  |                     | 505,750   |                     |  |           | 4.1 |             |  |          | 11.31 |  |  |          | 0       |  |  |   | 0     | 
|$11.51  $20.25          |  |                     | 491,451   |                     |  |           | 5.0 |             |  |          | 13.48 |  |  |          | 423,251 |  |  |   | 13.78 | 
|                         |  |                     |           |                     |  |           |     |             |  |          |       |  |  |          |         |  |  |   |       | 
|                         |  |                     | 1,167,005 |                     |  |           | 4.3 |             |  | $        | 11.82 |  |  |          | 580,055 |  |  | $ | 12.34 | 
|                         |  |                     |           |                     |  |           |     |             |  |          |       |  |  |          |         |  |  |   |       | 

Note 11: Savings Plan and Employee Stock Ownership Plan

The Company maintains a Savings Plan (401(k)) and a frozen Employee Stock
Ownership Plan (ESOP). Employees become eligible to participate in the 401(k)
after one year of employment. The Company has the option to match contributions
of participants at a rate management determines each year. For participants
with three or more years of service, the Company also may elect to make
additional discretionary matching contributions in excess of the rate elected
for participants with less than three years of service.

The Board of Directors determines the amount to be contributed annually to the
401(k) in cash, provided that such contributions shall not exceed the amount
deductible for federal income tax purposes. Cash contributions to the 401(k) of
$335, $441, and $670 were made for 2003, 2002, and 2001, respectively.

The ESOP was established in 1975 and was frozen in 1994, at which time all
participants became fully vested. Contributions to the ESOP were invested
primarily in stock of the Company. The ESOP held 499,096 shares of the
Companys stock at May 31, 2003.

Note 12: Insurance Settlement

On July 22, 2003, the Company received a one-time insurance settlement of
$2,000 related to unrecoverable rental and lease equipment written off in years
prior to fiscal 2003. The Companys claim was settled and the insurance
proceeds were recorded as other income in fiscal 2003.

Note 13: Segment Reporting

SFAS No. 131,Disclosure about Segments of an Enterprise and Related
Information, establishes annual and interim reporting standards for an
enterprises operating segments and related disclosures about its products,
services, geographic areas and major customers. Under SFAS No. 131, the
Companys operations are treated as one operating segment because discrete
financial information is not available for its product groups and the economic
characteristics of the product groups are similar.

Although the Company has no reportable segments, it has two groups of similar
products: test and measurement (T&M) and computer-related (DP) equipment. The
Companys equipment pool, based on acquisition cost, comprised $194,433 of T&M
equipment and $58,245 of DP equipment at May 31, 2003, and $225,099 of T&M
equipment and $97,765 of DP equipment at May 31, 2002.





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ELECTRO RENT 2003 ANNUAL REPORT

28

Revenues for these product groups were as follows for the fiscal year ended May
31:

|                                      |  |     |         |    |  |       |        |  |  |   |         | 
|------------------------------------- |  | --- | ------- | -- |  | ----- | ------ |  |  | - | ------- | 
|                                      |  | T&M |         | DP |  | Total
|                                      |  |     |         |    |  |      
|2003                                  |  |     |         |    |  |       |        |  |  |   |         | 
|Rentals and leases                    |  | $   | 52,990  |    |  | $     | 27,677 |  |  | $ | 80,667  | 
|Sales of equipment and other revenues |  |     | 22,736  |    |  |       | 5,393  |  |  |   | 28,129  | 
|                                      |  |     |         |    |  |       |        |  |  |   |         | 
|                                      |  | $   | 75,726  |    |  | $     | 33,070 |  |  | $ | 108,796 | 
|                                      |  |     |         |    |  |       |        |  |  |   |         | 
|2002                                  |  |     |         |    |  |       |        |  |  |   |         | 
|Rentals and leases                    |  | $   | 71,546  |    |  | $     | 43,764 |  |  | $ | 115,310 | 
|Sales of equipment and other revenues |  |     | 23,954  |    |  |       | 8,600  |  |  |   | 32,554  | 
|                                      |  |     |         |    |  |       |        |  |  |   |         | 
|                                      |  | $   | 95,500  |    |  | $     | 52,364 |  |  | $ | 147,864 | 
|                                      |  |     |         |    |  |       |        |  |  |   |         | 
|2001                                  |  |     |         |    |  |       |        |  |  |   |         | 
|Rentals and leases                    |  | $   | 87,533  |    |  | $     | 85,962 |  |  | $ | 173,495 | 
|Sales of equipment and other revenues |  |     | 23,929  |    |  |       | 13,752 |  |  |   | 37,681  | 
|                                      |  |     |         |    |  |       |        |  |  |   |         | 
|                                      |  | $   | 111,462 |    |  | $     | 99,714 |  |  | $ | 211,176 | 
|                                      |  |     |         |    |  |       |        |  |  |   |         | 

No single customer accounted for more than 10% of total revenues during fiscal
2003 and 2002. In addition, total foreign country customers and operations
accounted for less than 10% of the Companys revenues and long-lived assets for
the same periods.

Note 14: Quarterly Information (Unaudited)

Quarterly information is as follows:

|                 |                |   |          |        |               |   |               |         |                           |   |         |         |      |   |       |       |      |   |       |       |     
|---------------- | -------------- | - | -------- | ------ | ------------- | - | ------------- | ------- | ------------------------- | - | ------- | ------- | ---- | - | ----- | ----- | ---- | - | ----- | ----- | ----
|                 |                |   | Total    |        | Income (Loss) |   | Net           |         | Earnings (Loss) Per Share
|                 |                |   | Revenues |        | Before Taxes  |   | Income (Loss) |         | Basic                     |   | Diluted
|                 |                |   |          |        |               |   |               |         |                           |   |        
|Fiscal Year 2003 |                |   |          |        |               |   |               |         |                           |   |         |         |      |   |       |       |      |   |       |      
|                 | First Quarter  |   | $        | 31,065 |               |   | $             | 4,192   |                           |   | $       | 2,601   |      |   | $     | 0.10  |      |   | $     | 0.10  |     
|                 | Second Quarter |   |          | 28,770 |               |   |               | 3,112   |                           |   |         | 1,930   |      |   |       | 0.08  |      |   |       | 0.08  |     
|                 | Third Quarter  |   |          | 24,642 |               |   |               | 1,383   |                           |   |         | 857     |      |   |       | 0.04  |      |   |       | 0.04  |     
|                 | Fourth Quarter |   |          | 24,319 |               |   |               | (32,997 | )                         |   |         | (20,374 | )(1) |   |       | (0.82 | )(1) |   |       | (0.82 | )(1)
|                 |                |   |          |        |               |   |               |         |                           |   |         |         |      |   |       |       |      |   |       |       |     
|                 |                | $ | 108,796  |        |               | $ | (24,310       | )       |                           | $ | (14,986 | )       |      | $ | (0.60 | )     |      | $ | (0.60 | )    
|                 |                |   |          |        |               |   |               |         |                           |   |         |         |      |   |       |       |      |   |       |       |     
|Fiscal Year 2002 |                |   |          |        |               |   |               |         |                           |   |         |         |      |   |       |       |      |   |       |      
|                 | First Quarter  |   | $        | 42,956 |               |   | $             | 6,441   |                           |   | $       | 3,994   |      |   | $     | 0.16  |      |   | $     | 0.16  |     
|                 | Second Quarter |   |          | 39,081 |               |   |               | 5,164   |                           |   |         | 3,202   |      |   |       | 0.13  |      |   |       | 0.13  |     
|                 | Third Quarter  |   |          | 31,993 |               |   |               | 2,913   |                           |   |         | 1,807   |      |   |       | 0.07  |      |   |       | 0.07  |     
|                 | Fourth Quarter |   |          | 33,834 |               |   |               | 3,408   |                           |   |         | 4,119   | (2)  |   |       | 0.17  | (2)  |   |       | 0.17  | (2) 
|                 |                |   |          |        |               |   |               |         |                           |   |         |         |      |   |       |       |      |   |       |       |     
|                 |                | $ | 147,864  |        |               | $ | 17,926        |         |                           | $ | 13,122  |         |      | $ | 0.53  |       |      | $ | 0.53  |      
|                 |                |   |          |        |               |   |               |         |                           |   |         |         |      |   |       |       |      |   |       |       |     



---

|(1) |  | Includes pre-tax loss on impairment of goodwill and other intangible assets
of $37.1 million and pre-tax income from an insurance settlement of $2.0
million.             
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Includes reduction in income tax expense of $2.0 million related
to a re-evaluation of the Companys accrued liability for state, federal, local
and foreign income taxes.





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##### 



ELECTRO RENT 2003 ANNUAL REPORT

29

INDEPENDENT AUDITORS REPORT

To the Shareholders and Board of Directors of Electro Rent Corporation:

We have audited the accompanying consolidated balance sheets of Electro Rent
Corporation (a California Corporation) and subsidiaries (the Company) as of
May 31, 2003 and 2002 and the related consolidated statements of operations,
shareholders equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audits. The consolidated financial statements of the Company for the year
ended May 31, 2001 were audited by other auditors who have ceased operations.
Those auditors expressed an unqualified opinion on those financial statements
in their report dated August 6, 2001.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, such 2003 and 2002 consolidated financial statements present
fairly, in all material respects, the financial position of Electro Rent
Corporation and subsidiaries as of May 31, 2003 and 2002, and the results of
their operations and their cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States of America.

As discussed in Note 2 to the financial statements, in fiscal year ended May
31, 2002, the Company changed its method of accounting for goodwill and other
intangibles to conform to Statement of Financial Accounting Standards No. 142,
resulting in the discontinuation of amortization of goodwill during the fiscal
year ended May 31, 2002.

(Deloitte&Touche LLP signature)
Los Angeles, California
August 21, 2003